Former Employers More Likely To Allege Misconduct By Laid-Off Workers Than In Past Recessions

Laid-off workers seeking unemployment benefits today are almost twice as likely as their counterparts during the recession of the 1980s to be accused of misconduct by their former employers.

From 1980 to 1982, when the unemployment rate crept toward 10 percent, employers told state unemployment insurance offices that laid-off workers seeking benefits had been fired for misconduct between 5.9 and 7.1 percent of the time, according to Labor Department data compiled by the National Employment Law Project. In 2008, after climbing steadily for the past 25 years, the rate of misconduct claims reached 13 percent.

More than 22 million people filed unemployment claims in 2008. For 2.8 million of them, employers said it was the workers' own fault.

"If you're fired from a job and they can establish that you were fired for misconduct, you can get disqualified from an unemployment benefit," said NELP deputy director Andrew Stettner. (Workers who quit voluntarily are also ineligible.) "There's a big incentive."

Employers have an incentive to see former workers disqualified because businesses pay an unemployment tax that varies depending on the amount of benefits collected by ex-employees. (Unemployment tax rates, as well as eligibility requirements for benefits, vary from state to state.) And that savings is big money for third-party companies that are paid by employers to process appeals of unemployment claims. The biggest company is TALX, a wholly-owned subsidiary of credit bureau Equifax. TALX reportedly removes "over $6 billion in unemployment claims liability annually."

Kate McHugh learned about TALX in February after losing her job at a Washington, D.C. clothing retailer where she'd worked for a year and a half. In May, after she'd been drawing $359 a week in unemployment benefits, she received a notice from the government that her former employer wanted to block the payouts because McHugh, 26, had been fired for misconduct.

"It was a bit of a life crusher," McHugh said. She called a lawyer.

The retailer must not have expected McHugh to fight back. Forced to prove her misconduct to an administrative law judge, the company claimed that she stole 10 minutes of company time by showing up late to work one day in January, and that she "falsified" her arrival time on a malfunctioning punch clock. That was it.

The judge essentially laughed the retailer out of the courtroom, writing in his decision affirming McHugh's benefits that her former employer provided no evidence that she'd attempted to falsify her arrival time. Even if she had, the judge wrote, "A single alleged incident of incorrectly reporting arrival time, creating a discrepancy of five to ten minutes, does not rise to the level of misconduct for purposes of the unemployment compensation statute."

The retailer outsourced its appeal of McHugh's benefits to TALX. According to a press release, the company's Unemployment Cost Management program "lowers unemployment costs by streamlining day-to day unemployment claims processing, conducting benefit charge recoveries, and assisting with the hearing and appeals process."

A TALX spokesperson declined to provide details about how much business the company has been doing in the unemployment arena, but did say that business is up as employers try to cut costs.

"We have had an incremental increase in the unemployment business, but it's not as a result of employers getting more aggressive," the spokesperson said. "It's simply that the load is getting so big at this point that they need help with it so that nobody falls through the cracks."

Doug Holmes, president of an organization called UWC Strategic Services, which represents businesses in unemployment matters, stressed that it's the state that determines whether a person receives benefits and that there's nothing nefarious about employers providing information. Companies like TALX, he said, smooth the process.

"[Workers] are not entitled to be paid until a determination has been made that they became unemployed through no fault of their own," he said.

"At a time when many employees are economically dependent, they don't have income, they can't hire a lawyer, there's no legal service provided to them, they will be overwhelmed by such an allegation and not contest it," said McHugh's lawyer, Steve Mercer, who represented her pro bono. "The shame of it is that -- looking at [McHugh's] case as an example -- when an allegation of theft is challenged, look how quickly it falls apart once it's scrutinized."